Bullion Cues. Oil rises, but gold unmoved

Gold prices closed the week at $1,188.39/ounce, up a marginal 0.84 per cent.

On Friday, the US Labour Department said that non-farm payrolls rose by 2,23,000 in April while the unemployment rate dropped to 5.4 per cent from 5.5 per cent in March. Economists had expected an addition of 2,28,000 jobs.

What, however, weighed on sentiment was the steep downward revision made to the March hiring number. It was cut to 85,000 jobs from a previously reported 1,26,000.

Silver and platinum ended in the green. Silver closed at $16.47/ounce, up 1.93 per cent. Platinum ended at $1,141.5/ounce, up 0.9 per cent. The US dollar index continued to droop and ended 0.5 per cent lower at 94.79.

Investors, however, didn’t seem very keen to buy bullion. The US SPDR Gold Trust, the largest gold-backed ETF in the world, saw a sharp drop of 13 tonnes in its assets. The ETF’s holding was reported at 728.32 tonnes, down from 741.75 tonnes a week earlier.

In India, gold and silver prices moved up, thanks to the weak rupee. A sagging US dollar and rising crude prices supposedly favour gold. But what we are seeing now is to the contrary.

In the last one month, while the US dollar index has dropped over 4 per cent and crude oil has rallied 13 per cent, gold has been stuck in the $1,175 to $1,200 band. This reflects investor concern about US rate hikes.

In the coming weeks, if there is any signal of a stronger economy from the jobs or housing data in the US, gold prices may take a blow. There is every chance of the metal plunging to $1,143/ounce — its 2014 low. US bond yields have risen sharply on the rally in crude prices and if the anticipation of a Fed rate hike continues, it may turn out to be a challenge for gold.

Trades in silver, the other precious metal, should also be carefully played by investors. In 2015, global silver production is expected to fall after increasing for 12 continuous years.

This could arrest falling prices to an extent. Silver prices have fallen over 50 per cent in the last two years. But since the global bullion market is moved more by speculation than fundamentals, you may need to be cautious. Demand for silver from industrial users was down 0.5 per cent in 2014, said the Silver Institute’s survey last week.

This week, the US economic calendar has three data releases scheduled. On Wednesday is retail sales data and on Thursday the weekly jobless claims.

On Friday we will have access to industrial production data for April. In March it was at a negative 0.6 per cent. This time the consensus estimate is that it will be zero as the manufacturing sector hasn’t shown any significant improvement.

The rupee is weakening. Technically there are signs of this weakness persisting for more time and the currency continuing its ride downhill.

This is positive for investors who already hold gold as the metal is denominated in dollars. The MCX Gold futures contract closed at ₹26,889/10 gm, up 0.9 per cent last week. The silver futures contract ended at ₹37,935/kg, up 3.8 per cent.

However, as international bullion prices are weak, much of the benefits from a weak rupee may get negated.

This week, MCX Gold (₹26,889) may edge up to ₹27,200 and then to ₹27,500, if the resistance at ₹27,000 is crossed. On the downside, the first target will be ₹26,000 if the support at ₹26,700 is breached. MCX Silver (₹37,935) moved up strongly last week to hit a high of ₹38,243 — this is a positive. It may continue to move up to the target of ₹38,500 and ₹39,000. On the downside, the supports are at ₹37,000 and ₹36,800.

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